United States securities and exchange commission logo
May 26, 2022
Di Chen
Corporate Secretary
ZK International Group Co., Ltd.
No. 678 Dingxiang Road, Binhai Industrial Park
Economic & Technology Development Zone
Wenzhou, Zhejiang Province
People s Republic of China 325025
Re: ZK International
Group Co., Ltd.
Form 20-F for the
Fiscal Year Ended September 30, 2021
Filed January 28,
2022
File No. 001-38146
Dear Mr. Chen:
We have limited our review of your filing to the financial
statements and related
disclosures and have the following comments. In some of our comments, we
may ask you to
provide us with information so we may better understand your disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Form 20-F for the Fiscal Year Ended September 30, 2021
Part I, page 5
1. At the onset of Part I,
please revise to disclose prominently the following:
whether your
auditor is subject to the determinations announced by the PCAOB on
December 16, 2021;
whether and how the
Holding Foreign Companies Accountable Act, the Accelerating
Holding Foreign
Companies Accountable Act, and related regulations will affect your
company, including
the time frame change in PCAOB inspections to two consecutive
years instead of
three years;
whether you have
been or are expect to be identified by the Commission under the
HFCAA; and
a cross-reference
to more detailed disclosures in your risk factors, including the
Di Chen
FirstName LastNameDi ChenLtd.
ZK International Group Co.,
Comapany
May NameZK International Group Co., Ltd.
26, 2022
May 26,
Page 2 2022 Page 2
FirstName LastName
heading of the risk factor.
2. At the onset of Part I, please disclose prominently that you are not a
Chinese operating
company but a British Virgin Islands holding company with operations
conducted by your
subsidiaries, primarily based in China, and that this structure
involves unique risks to
investors. Provide a cross-reference to your detailed discussion of
risks facing the
company as a result of this structure.
3. At the onset of Part I, please provide prominent disclosure about the
legal and operational
risks associated with being based in or having the majority of the
company s operations in
China. Your disclosure should make clear whether these risks could
result in a material
change in your operations and/or the value of your ordinary shares or
could significantly
limit or completely hinder your ability to offer or continue to offer
securities to investors
and cause the value of such securities to significantly decline or be
worthless. Your
disclosure should address how recent statements and regulatory actions
by China s
government, such as those related data security or anti-monopoly
concerns, have or may
impact the company s ability to conduct its business, accept foreign
investments, or list on
a U.S. or other foreign exchange.
4. We note your disclosures on page 3; however, when you provide
disclosure throughout
the filing please make it clear to investors which entity the
disclosure is referencing and
which subsidiaries or entities are conducting business operations.
Refrain from using
terms such as we or our when describing activities or
functions of a subsidiary. For
example, disclose, if true, that your subsidiaries conduct operations
in China and that the
holding company does not conduct operations. Disclose clearly the
entity (including the
domicile) in which investors own an interest.
Item 3. Key Information, page 5
5. At the onset of Item 3, please disclose the risks that your corporate
structure and being
based in or having the majority of the company s operations in China
poses to investors.
In particular, describe the significant regulatory, liquidity, and
enforcement risks with
cross-references to the more detailed discussion of these risks in the
filing. For example,
specifically discuss risks arising from the legal system in China,
including risks and
uncertainties regarding the enforcement of laws and that rules and
regulations in China
can change quickly with little advance notice; and the risk that the
Chinese government
may intervene or influence your operations at any time, or may exert
more control over
offerings conducted overseas and/or foreign investment in China-based
issuers, which
could result in a material change in your operations and/or the value
of your ordinary
shares. Acknowledge any risks that any actions by the Chinese
government to exert more
oversight and control over offerings that are conducted overseas
and/or foreign investment
in China-based issuers could significantly limit or completely hinder
your ability to offer
or continue to offer securities to investors and cause the value of
such securities to
significantly decline or be worthless.
Di Chen
FirstName LastNameDi ChenLtd.
ZK International Group Co.,
Comapany
May NameZK International Group Co., Ltd.
26, 2022
May 26,
Page 3 2022 Page 3
FirstName LastName
6. Please disclose each permission or approval that you or your
subsidiaries are required to
obtain from Chinese authorities to operate your business and to offer
securities to foreign
investors. State whether you or your subsidiaries are covered by
permission requirements
from the China Securities Regulatory Commission (CSRC), Cyberspace
Administration of
China (CAC) or any other governmental agency that is required to
approve operations,
and state affirmatively whether you have received all requisite
permissions or approvals
and whether any permissions or approvals have been denied. Please also
describe the
consequences to you and your investors if you or your subsidiaries:
(i) do not receive or
maintain such permissions or approvals, (ii) inadvertently conclude
that such permissions
or approvals are not required, or (iii) applicable laws, regulations,
or interpretations
change and you are required to obtain such permissions or approvals in
the future.
7. At the onset of Item 3, please provide a clear description of how cash
is transferred
through your organization. Disclose your intentions to distribute
earnings or settle
amounts owed under applicable agreements. Quantify any cash flows and
transfers of
other assets by type that have occurred between the holding company
and its subsidiaries
and direction of transfer. Quantify any dividends or distributions
that a subsidiary have
made to the holding company and which entity made such transfer, and
their tax
consequences. Similarly quantify dividends or distributions made to
U.S. investors, the
source, and their tax consequences. Your disclosure should make clear
if no transfers,
dividends, or distributions have been made to date. Describe any
restrictions on foreign
exchange and your ability to transfer cash between entities, across
borders, and to U.S.
investors. Describe any restrictions and limitations on your ability
to distribute earnings
from the company, including your subsidiaries to the parent company
and U.S. investors
as well as the ability to settle amounts owed under applicable
agreements.
8. Please disclose that trading in your securities may be prohibited
under the Holding
Foreign Companies Accountable Act if the PCAOB determines that it
cannot inspect or
investigate completely your auditor, and that as a result an exchange
may determine to
delist your securities. Disclose whether your auditor is subject to
the determinations
announced by the PCAOB on December 16, 2021.
A. Selected Financial Data, page 5
9. Please ensure amounts presented here correspond with amounts presented
in your
financial statements. In this regard, we note you disclose income from
operations for the
year ended September 30, 2021; however, you disclose an operating loss
in your financial
statements.
D. Risk Factors, page 6
10. Given the Chinese government s significant oversight and discretion
over the conduct of
your business, please revise to highlight separately the risk that the
Chinese government
may intervene or influence your operations at any time, which could
result in a material
Di Chen
FirstName LastNameDi ChenLtd.
ZK International Group Co.,
Comapany
May NameZK International Group Co., Ltd.
26, 2022
May 26,
Page 4 2022 Page 4
FirstName LastName
change in your operations and/or the value of your securities. Also,
given recent
statements by the Chinese government indicating an intent to exert
more oversight and
control over offerings that are conducted overseas and/or foreign
investment in China-
based issuers, acknowledge the risk that any such action could
significantly limit or
completely hinder your ability to offer or continue to offer
securities to investors and
cause the value of such securities to significantly decline or be
worthless.
11. Since your officers and directors are located in China, as disclosed
in your risk factor on
page 21, please revise to also include a separate Enforceability
section to disclose the
difficulty of bringing actions and enforcing judgements against these
individuals.
Item 5. Operating and Financial Review and Prospects, page 55
12. We note your disclosures under operating results beginning on page 55
do not quantify
and fully explain the reasons for material changes during the periods
presented. Please
more fully address the following:
revise your discussion of changes in revenues to quantify and
disclose the impact of
changes in the volume of goods sold and the average selling prices
during each
period and disclose and discuss the factors that impacted changes
in volume and
price during each period; and
given the material impact certain products have on gross profit
margins, quantify
revenues by material product type/line and disclose and discuss
the impact of changes
in product mix on gross profit margins during each period.
13. We note your disclosures under liquidity and capital resources on page
61 regarding the
aging of accounts receivable as of the last three balance sheet dates.
We note you
indicate you evaluate the adequacy of your allowance for doubtful
accounts based on
individual account analysis and historical collection trends; however,
we also note the
significant deterioration in the aging of accounts receivable during
the last three year,
including the fact that approximately 57% of outstanding accounts
receivable at
September 30, 2021 are greater than one year old. Please more fully
disclose and discuss
the specific facts and circumstances that resulted in the significant
deterioration in the
aging of accounts receivable during the last three year and more fully
explain how and
why you concluded the related allowance is adequate. Please also tell
us and disclose the
amount of outstanding accounts receivable at September 30, 2021 that
have been
subsequently collected.
14. Please disclose and discuss information regarding your critical
accounting estimates.
Refer to Item 5.E of Form 20-F.
Item 10. Additional Information
D. Exchange Controls, page 79
15. We note two references to a VIE in the PRC in the last paragraph of
this section on page
81; however, we noted no disclosures throughout the filing that
indicate you operate
Di Chen
ZK International Group Co., Ltd.
May 26, 2022
Page 5
through a VIE structure. Please explain to us and/or revise your
disclosures to address this
apparent inconsistency. If accurate, please affirmatively state at the
onset of Part I that you
do not use a VIE structure.
Consolidated Financial Statements
Note 8 - Long-Term Investment, page F-17
16. We note you entered into a Subscription Agreement with CG Malta that
resulted in an
ownership interest of 15.73 % and it appears you are committed to
purchase additional
ownership interests no later than April 30, 2022. We also note you
account for your
investment in CG Malta at cost under ASC 321 and have elected the
measurement
alternative under ASC 321 to use cost minus impairment for the
subsequent measurement
of this investment. Based on your ownership interest and your
commitment to purchase
additional ownership interests, please more fully explain to us how
you determined this
investment is not required to be accounted for under ASC 323. Please
also explain to us if
and how the purchase of additional ownership interests subsequent to
year-end impacted
your accounting for this investment. In addition, given the
materiality of this investment to
your assets and total equity, please revise your disclosures under
either Item 4 or Item 5 to
more fully address the current financial condition and results of
operations of CG Malta.
Your disclosures should allow investors to better understand the
nature and magnitude of
CG Malta's operations so they can better assess the purchase price.
Note 19 - Segment Reporting, page F-25
17. We note you determined you have one operating segment as defined by
ASC 280. Based
on the significant differences between your historical business
operations in China relative
to the business operations conducted by and expected to be conducted
by the multiple
xSigma subsidiaries, please more fully explain to us how you
determined you have one
operating segment.
In closing, we remind you that the company and its management are
responsible for the
accuracy and adequacy of their disclosures, notwithstanding any review,
comments, action or
absence of action by the staff.
You may contact Dale Welcome at 202-551-3865 or Anne McConnell at
202-551-3709
with any questions.
FirstName LastNameDi Chen Sincerely,
Comapany NameZK International Group Co., Ltd.
Division of
Corporation Finance
May 26, 2022 Page 5 Office of
Manufacturing
FirstName LastName